UBS shares plummet as profit slumps at core wealth business

ZURICH — Shares in UBS, whose biggest shareholder is the Government of Singapore, dropped the most in more than a year after the Swiss bank reported today (Feb 2) that profit at its wealth management and investment-banking businesses slumped in the fourth quarter.

At the wealth-management unit, the bank’s largest, pre-tax profit fell 47 per cent to 344 million Swiss francs (S$482 million) from the corresponding quarter a year earlier, while the investment bank reported a drop in pre-tax profit of 63 per cent to 80 million francs, the Zurich-based lender said.

UBS Chief Executive Sergio Ermotti, 55, has reshaped the lender by shrinking the investment bank to focus on wealth management, a model that is being tested as market swings, cooling emerging economies and a slumping oil price reduce client trading. The Swiss bank said it was hurt by very low levels of client activity and pronounced risk aversion in the fourth quarter, with record-low interest rates and a strong franc adding to headwinds this year.

“Operatively, it was an abysmal quarter in wealth management and investment banking. It’s incomprehensible to me why UBS is alternating between perfect and awful,” said Mr Andreas Brun, an analyst at Zuercher Kantonalbank who downgraded UBS stock to Market Perform from Outperform.

UBS shares dropped as much as 8.8 per cent to 15.21 francs, the biggest intraday slump since January 2015, and were down 7.1 per cent at 15.49 francs in early afternoon trading in Zurich. They have declined about 21 per cent this year, while the Bloomberg Europe Banks and Financial Services Index lost 18 per cent.

Fourth-quarter net income rose 11 per cent to 949 million francs, but this was because of a taxation benefit of 715 million francs, mainly relating to a net upward revaluation of deferred tax assets. On a call with analysts, Mr Ermotti called the three months through December the “most challenging” quarter the bank has experienced in several years.

“No matter how you look at it, risk aversion is still very high. Clients know they should invest more, but cash helps them sleep better at night. While the long-term outlook remains sound, they are questioning the predictability of tomorrow,” he said.

At the wealth-management business, pre-tax profit missed the 634 million francs projected by analysts in a Bloomberg survey. The gross margin on invested assets fell 4 basis points to 80 basis points from the third quarter. The division had net money outflows of 3.4 billion francs, the worst performance since the second quarter of 2010, when the bank reported outflows of 5.2 billion francs.

In recent months, financial firms have been rocked by turbulence in Chinese markets as authorities in the world’s second largest economy scrambled to intervene amid a deepening slowdown. The Chinese economy has also been hurt by capital outflows and currency volatility as some investors try to profit from gaps between the onshore and offshore yuan rates. BLOOMBERG